Where to Invest Your Money in 2014?

After all, we’re just coming out of a year in which the S&P 500 has rallied by around 30% since the beginning of January 2013.

Can that pace continue for another year? Or are we facing the potential for a sharp pullback?

What about interest rates – are they going to be sky-high like so many people keep saying?

Let’s take a look at some of the factors that may influence where you decide to invest in 2014.

All Eyes on Interest Rates in 2014

The question occupying Wall Street minds these days: Where will interest rates go?

Interest rates affect many aspects of the economy, from buying a home or car to what your savings account earns (as you probably know, right now that’s not much). Interest rates also affect the price of bonds and other fixed income securities. When interest rates rise, bond prices tend to fall. The impact is higher, other things being equal, for bonds with longer maturities than for those that mature within a short period of time.

There’s no guarantee that interest rates will rise significantly in 2014. But the odds are in favor of a sustained uptrend in interest rates. If you have a significant amount of bonds in your portfolio, you may want think about reducing the average maturity length, so as to favor bonds that are less vulnerable to a rising rate environment.

Use an online tool, like Jemstep’s Portfolio Manager, to help you determine an optimal bond allocation. Portfolio Manager can give you specific buy-and-sell advice that’s customized to your portfolio and investing profile: age, goals, risk tolerance and preferences.

2014 U.S. Equities Investing: How Much Gas Left in the Growth Tank?

2013 was a torrid year for U.S. stocks. Performance has been robust across the board, from broad indexes like the S&P 500 to defined styles like growth, value, large and small cap.. That has some people wondering whether it’s a good time to pocket some of those gains and reduce exposure to U.S. equities in the coming year.

It’s tempting to think that way, and certainly nothing goes up and up forever. But the data at this point don’t seem to argue for a strong pullback. U.S. macroeconomic data points ranging from GDP to unemployment, housing and consumer spending are stronger than they have been for years. The recovery has gained enough strength for the Fed to start reducing the amount of stimulus it pumps into the economy every month. So while 2014 may not be another 30% year for U.S. stocks, there’s no reason why it has to be negative, either. A sharp reduction in this asset category may be ill-advised.

Will Emerging Markets Come Back in 2014?

Emerging markets surprised many investors in 2013. In a generally “on year” for riskier assets, emerging markets missed the party entirely.

There are various reasons for this. Emerging markets require strong, sustained growth rates to build a stronger infrastructure around their economies and increase the spending power of their citizens. Growth rates have slowed in major markets from China to Brazil. Also, these markets remain heavily dependent on exports to developed economies in Europe and North America. Sluggish recent growth in these markets has had an impact on the ability of emerging markets companies to live up to investors’ growth expectations.

This situation may change if real growth comes back to the U.S. and Europe manages to avoid falling back into another recession. At current valuation levels, emerging markets look cheap as an asset class. A believable economic growth story could bring some luster back to this once high-flying asset class.

Stay Focused on the Long Term

Whatever you think may happen in 2014, don’t forget that markets are full of surprises, and anything could happen. Even the experts get the short-term wrong. The best antidote to unwanted surprises in the markets is to stay diversified in pursuit of your long-term investing goals.

Where do you plan to invest money in 2014? Tell us what you think.

For a simple way to track all your retirement investments and advice to help you optimize your portfolio, visit Jemstep.com.

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About the Author

Jemstep’s The Better Investor Blog is created with the goal of helping investors make the best decisions to reach their long-term goals. This blog presents readers with insights and tips from the leading experts in the investment field.

Past performance is not a guarantee of future results. Investment returns and principal value will fluctuate, so that investor's shares, when sold, may be worth more or less than their original cost. Mutual fund investments are not bank guaranteed or FDIC insured, and may lose value. Jemstep is not a tax advisor and investors should obtain independent advice on the tax consequences of their investments.